BHP Says Cost Cutting Tops Agenda as Mineral Demand Growth Wanes

BHP Billiton Ltd. (BHP), the world’s
biggest mining company, said an expected slowdown in demand for
minerals over the next five years makes cutting costs and
boosting productivity a priority.

“I’m committed to drive an agenda of productivity and that
will almost certainly” be a “top theme,” Andrew Mackenzie,
the Melbourne-based company’s newly appointed chief executive
officer, said yesterday in an interview with the Australian
Broadcasting Corp., according to a transcript.

Faced with falling prices crimping profits, BHP unveiled
$1.9 billion in cost savings when it released its half-year
results Feb. 20, as net income fell 58 percent after commodity
prices declined. Mackenzie, the head of BHP’s copper unit, who
previously worked at BP Plc (BP/) and Rio Tinto Group, takes over from
Marius Kloppers on May 10.

While demand in China will remain strong “over the next
five years, we are going to go from a growth rate in minerals
demand of 15 percent to 20 percent a year to 2 percent to 4
percent a year,” Kloppers said in the joint interview for ABC’s
Inside Business program. “That means the suppliers will be able
to respond and meet demand and therefore you have to be low cost
and you have to take into account that price is not going to
help you.”

BHP joined Rio and Anglo American in reporting a drop in
earnings as waning global growth last year prompted lower prices
and some global miners to slow expansion. BHP sold $4.3 billion
of assets in the half and in August put projects estimated to
cost about $68 billion on hold.

Investment Choices

“We have a tremendous choice of the things that we can
invest in to grow,” said Mackenzie. “We are able to select
only the best projects so that we actually do get some of the
highest capital productivity and extend Marius’s track record.”

The price of iron ore, BHP’s most profitable unit, averaged
27 percent lower during the six months to Dec. 31, data from The
Steel Index shows. Iron ore may tumble to $110 a metric ton by
the end of the year, as mines in China boost production, cutting
import demand in the world’s largest buyer, Westpac Banking Corp. (WBC)
said this month. Iron ore last traded at $153.60 a ton on Feb.
22.

Mackenzie, 56, had about 12 months enforced gardening leave
after Kloppers, 50, poached him from Rio in 2007 to head the
copper division. He used the time to master Spanish -- his fifth
language -- to help him conduct contract talks in South America
as soon as he started, a person familiar with his appointment
said last week. He’s uniquely placed to wring more efficiencies
out of BHP’s mining and oil operations, which include shale
assets in the U.S., the person said last week.

North Sea

Mackenzie obtained a doctorate in chemistry from the
University of Bristol in 1980, and has published more than 50
research papers and pioneered extraction techniques in the North
Sea for BP, BHP said last week in a statement. He founded the BP
Institute at the University of Cambridge as well as institutes
at Princeton and Berkeley universities and the California
Institute of Technology. He joined Rio in 2004 and, as chief
executive of industrial minerals, built a $5 billion titanium
mine in Madagascar.

“Andrew was a brilliant academic research scientist who
chose to leave the world of academe for the wider world,
becoming not only a captain, but dare I say admiral, of
industry,” Professor James Maxwell, emeritus professor of
chemistry at the University of Bristol, said when Mackenzie was
awarded an honorary degree of Doctor of Science in February 2011
at the university.

Shale Gas

BHP is spending $4 billion this fiscal year on its shale
gas assets in the U.S., after acquiring the unit for about $20
billion in 2011. Kloppers cleared the decks for his successor by
booking a $2.84 billion charge in August on the value of the
assets after prices fell to a 10-year low in April. He defended
the purchases as a long-term investment in a shale liquids boom
that’s now poised to make the U.S. the world’s largest crude
producer by 2020.

Some mining company executives and shareholders are paying
the price for a $1.1 trillion mergers and acquisitions binge
over a decade. Failed deals in aluminum and coal caused $14
billion in writedowns at Rio and cost CEO Tom Albanese his job.
Cost overruns contributed to Cynthia Carroll’s departure as CEO
of Anglo American, which cut $4 billion off the value of an iron
ore project in Brazil. She leaves in April.

Under Kloppers, deals totaling about $200 billion were
aborted or rejected, including hostile bids for Rio Tinto and
Potash Corp. of Saskatchewan Inc. Kloppers could have remained
as CEO if he wanted and nothing pushed him out, according to the
person familiar.

BHP’s decision to abandon the bid for Rio Tinto during the
depths of the global financial crisis laid the foundations for
the company’s growth since then, Kloppers told reporters last
week.